Credit card changes help customers, but spend responsibly and beware of hidden fees

Wednesday

Feb 24, 2010 at 12:01 AMFeb 24, 2010 at 4:16 AM

Plastic is the new green. It’s fast. It’s easy. It’s self-indulgent. But Americans’ love-hate relationship with their credit cards has gotten them into some murky waters in the ocean of debt. New credit card laws, which went into effect Monday, are designed to give cardholders a life jacket.

Erin Pustay

Plastic is the new green.

It’s fast. It’s easy. It’s self-indulgent.

But Americans’ love-hate relationship with their credit cards has gotten them into some murky waters in the ocean of debt. New credit card laws, which went into effect Monday, are designed to give cardholders a life jacket.

Financial adviser Chris Sanor, president of POH, an affiliate of Raymond James Financial Services Inc. in Navarre, Ohio, believes there are good lessons about responsible spending coming our way with the new rules.

“This is a good lesson for people to learn,” Sanor said. “We have to learn to live within our means and learn the difference between our needs and our wants. We can’t be spending willy-nilly on everything we want.”

Primarily, the rules have credit card companies being more transparent with their cardholders. Billing information, which card holders will receive 25 days prior to the due date, must include information on how long it will take to pay off the credit card debt if the minimum payment is made every month.

“I love that,” Sanor said. “I love the transparency of the billing that shows people how many months it would take to reduce the balance to zero. I think people are really naive to that. I think that’s a great idea.”

Interest rates can’t jump in the first 12 months for card-holders who maintain strong credit ratings. Credit companies must also notify cardholders of pending rate hikes 45 days in advance.

Sanor said it won't be surprising if cardholders have, in the last several months, noticed an interest rate jump on their existing accounts. It could be, she said, that credit card companies anticipating the changes got ahead of the curve.

“The crazy part about it is that interest rates were very low, almost an all-time low and credit card interest rates were still very high. They never adjusted and went down, they stayed high,” Sanor said. “People with really bad credit will probably find themselves paying more and more.”

That is another valuable lesson in responsible spending.

“People need to be cautious,” Sanor said. “If they do have a credit card balance, it’s best to pay it off in full every month and only use the card for emergencies so that you don’t get into big, big trouble and work yourself into a vicious cycle.”

To make sure young adults are well-prepared for credit card responsibility, the new laws require anyone younger than 21 to have a co-signer unless proof of financial stability can be given. That extra responsibility gives young adults the support they need as they begin foster spending habits.

“You can’t live on credit cards,” Sanor said. “You have to pay off balances in full every month.”

But there could be some unwelcome expenses coming everybody’s way. The new rules are expected to cost banks a lot of money, and they will have to make up that loss somewhere. It’s possible that it could come in the form of fees.

“Everyone,” Sanor said, “is going to have to be more cautious about checking to make sure you are not paying additional fees.”

Among the kinds of fees cardholders could see popping up on statements are annual fees, processing fees, paper statement fees and account inactivity fees.

“I don’t think anyone is going to be immune to this unless you pay off your balances every month,” Sanor said. “Even then, it could hit everyone across the board. Because this is such a tight industry, they are going to be looking at ways to make money any way they can.”

The key, Sanor said, is learning to be responsible with finances. Credit cards in and of themselves are not bad, Sanor said, but consumers need to learn to use them wisely. Understanding the difference between a need and want is critical and learning to live within our means is important, she said.

“Even if we make $1 million and spend $1 million and one, we are looking for trouble because we are spending more than we make,” Sanor said.